<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Quarter Ended SEPTEMBER 30, 1998
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from _____ to _____
Commission File Number: 0-28444
EPL TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
Colorado 84-0990658
(State of incorporation) (I.R.S. Employer Identification Number)
2 INTERNATIONAL PLAZA, SUITE 245
PHILADELPHIA, PA 19113-1507
(Address of principal executive offices) (Zip Code)
(610) 521-4400
(Telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
[X] Yes [ ] No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
11,455,545 shares of $0.001 par value
common stock outstanding as of October 31, 1998.
<PAGE> 2
EPL TECHNOLOGIES, INC.
INDEX
<TABLE>
<CAPTION>
Page
PART I - FINANCIAL INFORMATION
<S> <C> <C>
ITEM 1. FINANCIAL STATEMENTS
A. CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 1998 AND DECEMBER 31, 1997 1
B. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30,
1998 AND 1997 2
C. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 3
D. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 4
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL 8
CONDITION AND RESULTS OF OPERATIONS.
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 14
ITEM 5. OTHER INFORMATION 14
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. 14
SIGNATURES. 15
</TABLE>
<PAGE> 3
EPL TECHNOLOGIES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------ ------------
(Unaudited) (Audited)
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 6,003,647 $ 3,756,956
Accounts receivable, net 5,472,169 5,382,125
Inventories 4,505,636 3,411,213
Prepaid expenses and other current assets 1,456,085 1,060,506
------------ ------------
TOTAL CURRENT ASSETS 17,437,537 13,610,800
------------- -----------
PROPERTY AND EQUIPMENT, NET 10,849,793 8,145,543
OTHER ASSETS
Patent and distribution rights, net 1,007,506 977,903
Goodwill 3,025,060 3,247,229
Other intangibles, net 191,092 218,480
---------- ------------
TOTAL OTHER ASSETS 4,223,658 4,443,612
------------ -----------
TOTAL ASSETS $ 32,510,988 $ 26,199,955
============= ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 4,729,298 $ 4,738,369
Accrued expenses 1,028,577 1,147,597
Other liabilities 623,955 815,280
Current portion of long-term debt 713,314 396,070
---------- ------------
TOTAL CURRENT LIABILITIES 7,095,144 7,097,316
LONG TERM DEBT 3,937,871 1,791,903
DEFERRED INCOME TAXES 79,352 77,964
----------- --------------
TOTAL LIABILITIES 11,112,367 8,967,183
---------- ------------
Convertible Series D Preferred Stock 12,930,322 10,617,346
SHAREHOLDERS' EQUITY
Convertible Series A Preferred Stock 65,000 2,073,000
Convertible Series C Preferred Stock 0 144
Common Stock 11,454 9,048
Additional paid-in capital 38,265,003 28,697,761
Accumulated deficit (30,411,460) (24,206,954)
Foreign currency translation adjustment 538,302 42,427
------------- -----------
TOTAL SHAREHOLDERS' EQUITY 8,468,299 6,615,426
----------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 32,510,988 $ 26,199,955
============ ===========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
-1-
<PAGE> 4
EPL TECHNOLOGIES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Sales $ 24,776,127 $ 14,047,404 $ 8,405,355 $ 5,147,600
Cost of sales 20,667,917 12,604,440 7,228,744 4,572,780
------------ ------------ ------------ ------------
Gross profit 4,108,210 1,442,964 1,176,611 574,820
Selling, general and administrative expenses 5,412,253 4,437,477 1,647,993 1,733,442
Research and development costs 1,115,402 869,067 325,614 284,064
Depreciation and amortization 1,266,416 931,359 461,442 328,894
------------ ------------ ------------ ------------
Net loss from operations (3,685,861) (4,794,939) (1,258,438) (1,771,580)
Interest expense, net (6,869) 84,488 (21,442) 35,947
Minority interest 0 (212,672) 0 (136,062)
------------ ------------ ------------ ------------
Net loss $ (3,678,992) $ (4,666,755) $ (1,236,996) $ (1,671,465)
Deduct:
Accretion, discount and dividends on 2,618,727 411,139 265,073 92,230
------------ ------------ ------------ ------------
preferred stock
Net loss for common shareholders $ (6,297,719) $ (5,077,894) $ (1,502,069) $ (1,763,695)
============ ============ ============ ============
Loss per common share $ (0.61) $ (0.62) $ (0.13) $ (0.20)
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
-2-
<PAGE> 5
EPL TECHNOLOGIES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1998 1997
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $(3,678,992) $(4,666,755)
Adjustments to reconcile net loss to net cash
Used in operating activities: 1,179,784 918,481
Gain on foreign currency translation 232,536 27,788
Minority interest 0 (212,672)
Changes in assets and liabilities (1,843,063) 75,886
----------- -----------
Net cash (used) in operating activities (4,109,735) (3,857,272)
----------- -----------
INVESTING ACTIVITIES:
Purchase of fixed assets (3,423,782) (776,919)
Proceeds from sale of fixed assets 15,370 15,658
----------- -----------
Net cash (used) in investing activities (3,408,412) (761,261)
----------- -----------
FINANCING ACTIVITIES:
Proceeds from the exercise of options/warrants 852,018 1,388,454
Proceeds from issuance of common stock, net 6,726,190 1,251,980
Proceeds from issuance of preferred stock, net 0 623,998
Proceeds from long term debt/net borrowings 3,069,534 1,086,495
Repayment of long term debt (882,904) (206,212)
----------- -----------
Net cash provided from financing activities 9,764,838 4,144,715
----------- -----------
INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS 2,246,691 (473,818)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 3,756,956 1,639,567
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 6,003,647 $ 1,165,749
=========== ===========
SUPPLEMENTAL DISCLOSURES OF NON-CASH
FINANCING ACTIVITIES:
Accretion of warrants, discount, increased value and
issuance costs related to preferred stock $ 2,528,400 $ 72,222
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
-3-
<PAGE> 6
EPL TECHNOLOGIES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
The financial information of EPL Technologies, Inc. and Subsidiaries
(the "Company") included herein is unaudited; however, such information reflects
all adjustments (consisting solely of normal recurring adjustments) which are,
in the opinion of management, necessary for a fair statement of results for the
interim period.
The financial information has been prepared in accordance with generally
accepted accounting principles for interim financial information, the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, it does
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. Moreover, the results
of operations for the nine months and three months ended September 30, 1998 are
not necessarily indicative of the results to be expected for the full year. At
this stage of the Company's development, month to month and quarter to quarter
anomalies in operating results should be expected. This information must also be
read in connection with the Company's Annual Report on Form 10-K/A for the
fiscal year ended December 31, 1997.
NOTE 2 - OPERATIONS
EPL Technologies, Inc. develops, manufactures and markets proprietary
technologies designed to maintain the quality and integrity of fresh-cut
produce. The Company's primary products are processing aids and packaging
materials, together with a range of scientific and technical services that the
Company believes support and complement its product offerings. The Company's
continued ability to operate is dependent upon its ability to maintain adequate
financing and to achieve levels of revenues necessary to support its cost
structure, of which there can be no assurance. The process by which the Company
develops and sells its integrated systems solutions for certain kinds and
varieties of fresh-cut produce is both expensive and time-consuming. After
preliminary discussions with a potential customer, the Company performs a
comprehensive review of the potential customer's methods and facilities and
initiates a series of tests in an effort to tailor the application of the
Company's proprietary and other technologies to the kind or variety of produce
to be processed. The Company also works closely with the potential customer to
develop a detailed protocol to be followed in processing such produce. Once the
development of this integrated systems solution is substantially complete, the
Company conducts increasingly sophisticated tests in an effort to refine the
prescribed solution before the customer makes any purchase decision. Although
the Company believes it has improved its sales efforts significantly, the
Company's product development and sales process continues to be lengthy and
resource-intensive and could limit the Company's growth. Additionally, limited
awareness of the Company and its products in the marketplace and the highly
fragmented nature of the fresh-cut produce industry may extend the Company's
product development and sales process. The Company does not believe that this
process is likely to shorten significantly. Management believes that success in
this sales process with large processors is the primary basis for developing
sustainable growth in revenues, which will enable the Company to achieve
profitable operations in this area of the business, although there can be no
assurance such will be the case. The nature of the packaging materials business
is such that the sales process is shorter than that for processing aids, but
there is still an approval process to be completed with new customers prior to
sale.
During the third quarter NewcornCo LLC, an entity in which the Company
has a 51% ownership interest ("Newcorn"), relocated its processing facilities to
a new 74,000 sq ft facility located in Camarillo, California. In October 1998,
Newcorn received formal approval from The Sholl Group II, Inc. ("Sholl"),
exclusive licensee of the "Green Giant(R) Fresh" brand from the Pillsbury
Company, of its new facility. Following this approval, shipments of fresh-cut
corn under the "Green Giant(R) Fresh" brand commenced in late October 1998. The
Company has announced that work is continuing on a second new 35,000 sq ft
fresh-cut corn processing facility in the Midwest and that, subject to the
approval of this facility as well, it expects to begin shipping "Green Giant(R)
Fresh" corn products from this facility near the end of 1998. The Company also
announced the relocation of its fresh-cut potato processing activities from a
previously approved, outsourced, co-packer facility in Sacramento, California to
the new produce
- 4 -
<PAGE> 7
processing facility in Camarillo, California.
The Company's management believes that cash flows from consolidated
operations and existing resources, together with the remaining proceeds received
from the Company's public offering completed in May 1998, will be sufficient to
meet the Company's operating needs for the next 12 months. Although not
currently expecting to conduct any near term equity financing, the Company may
be required to seek, refinance or structure additional debt or equity financing
to implement its growth strategy. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" below.
NOTE 3 - INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION>
September 30, 1998 December 31, 1997
<S> <C> <C>
Raw Materials and Supplies $ 2,381,853 $ 2,285,588
Finished Goods 2,123,783 1,125,625
---------- ---------
Total Inventories $ 4,505,636 $ 3,411,213
========== =========
</TABLE>
NOTE 4 - CONVERTIBLE PREFERRED STOCK
The Company's 10% Series A Convertible Preferred Stock (the "Series
A Stock"), which has been issued up to its authorized limit of 3,250,000 shares,
was issued at a price of $1.00 per share, with each share of Series A Stock
carrying the option to convert into common shares at a rate of $1.50 per share.
The Series A Stock carries equal voting rights to the common shares, based on
the underlying number of common shares after conversion. The Series A Stock
carries a dividend rate of 10% per annum, payable in cash and/or common shares
(at a rate of $1.50 per share) at the Company's option. The dividends in arrears
at September 30, 1998 total $1,413,097.
During the three months ended September 30, 1998, shareholders
holding 25,000 shares of Series A Stock elected to convert such shares into
16,667 shares of common stock, leaving 65,000 shares of Series A Stock
outstanding at September 30, 1998. Substantially all of the other previously
outstanding shares of Series A Stock were converted in connection with the May
1998 public offering. In addition, 20% of the common stock into which the Series
A Stock may be converted carries detachable warrants at an exercise price of
$2.00 per warrant. No warrants were exercised during the three months ended
September 30, 1998, leaving 8,000 of these warrants unexercised at September 30,
1998.
At the Annual Meeting of the Company's shareholders held on July 22,
1996, the shareholders of the Company authorized the issuance of up to 2,000,000
shares of preferred stock (the "Board Designated Preferred Stock") with such
designations and preferences as the Company's Board of Directors may determine
from time to time. On July 23, 1996, the Company issued 531,915 of these shares
- - - designated Series B 10% Convertible Preferred Stock - at an aggregate
consideration of $2,500,000, to two existing institutional investors in the
Company (the "Series B Stock"). During 1997, the holders of all of the shares of
the Series B Stock elected to convert such shares into an aggregate of 265,957
shares of common stock and thus there were no shares of Series B Stock
outstanding at September 30, 1998. The Series B Stock carried a dividend rate of
10% per annum, payable in cash and/or shares of common stock (at a rate of $9.40
per share) at the Company's option. The dividend in arrears on the Series B
Stock at September 30, 1998 totaled $270,092.
During 1997, the Company received gross proceeds of $1.0 million
from an existing institutional shareholder in connection with a private offering
of common and Board Designated Preferred Stock. This resulted in the issuance of
43,750 shares of common stock, together with 144,444 shares of Board Designated
Preferred Stock - designated Series C Convertible Preferred Stock (the "Series C
Stock"). The Series C Stock carried a dividend rate of 10% per annum, payable in
cash and/or shares (at a rate of $9.00 per share) at the Company's option.
During the three months ended March 31, 1998, the holder of all of the Series C
Stock converted such shares into 72,222 shares of common stock and thus there
were no shares of Series C Stock outstanding at September 30, 1998. Dividends in
-5-
<PAGE> 8
arrears on the Series C Stock at September 30, 1998 totaled $49,239. In
connection with the issuance of the Series C Stock, the Company issued warrants
to purchase 30,993 shares of the Company's common stock at an exercise price of
$10.00 per share. The value of these warrants is being accreted over the
estimated lives of these warrants (5 years).
At the Annual Meeting of the Company held on July 21, 1997, the
shareholders of the Company approved an increase in the number of shares of
Board Designated Preferred Stock reserved for issuance from 2,000,000 to
4,000,000. During 1997, the Company issued a further 12,500 shares of Board
Designated Preferred Stock - designated Series D Convertible Preferred Stock -
at an aggregate consideration, before associated costs and expenses, of
$12,500,000 to three new institutional investors (the "Series D Stock"). The
Series D Stock certificate of designation contains provisions which, in certain
circumstances outside of the Company's control, could provide the holders of
Series D Stock with the ability to redeem their shares. The amount to be paid by
the Company in the event of a redemption would be calculated as the greater of
(a) 115% of the stated value of the Series D stock plus the effect of the 4% per
annum appreciation provision, accrued from the issuance date to the redemption
date or (b) the "parity value" of the shares to be redeemed, which is calculated
as the number of shares issuable upon conversion multiplied by the closing price
of a share of common stock on the redemption date.
The Series D Stock carries the option to convert into shares of
common stock at a variable rate, based on the stated value for each share of
Series D Stock ($1,000) divided by 94% of the prevailing market price at the
time of conversion, as calculated based on the lowest five-day average closing
bid price per share of Common Stock during a specified period of time, and
subject to certain limitations as set forth in the designations for the Series D
Stock. The extent of the beneficial ownership feature, representing the 6%
discount from the market price at the conversion date, a total of $800,000, was
to be accreted over the earliest period after which all such shares are
convertible, or nine months (the "Conversion Period") and was thus complete as
of September 30, 1998. In addition, the Series D Stock agreement contains a
provision whereby the stated value of the Series D Stock is to increase by 4%
per annum, accruing from the date of issuance until conversion. In connection
with the issuance of the Series D Stock, the Company issued 201,614 warrants to
purchase the Company's common stock at an exercise price of 130% of the closing
price on the issuance date (i.e. $20.16 per share). The fair value of these
warrants ($1,200,000) was accreted over the Conversion Period and is thus
complete. Holders of the Series D Stock have limited voting rights and are not
entitled to any dividends.
NOTE 5 - ISSUANCE OF COMMON STOCK AND EXERCISE OF WARRANTS
The only shares of common stock issued during the three months
ended September 30, 1998 were the 16,667 shares issued upon conversion of 25,000
shares of Series A Stock, as mentioned above.
At a meeting of the Company's shareholders held on September
29, 1998, shareholders approved the Company's 1998 Stock Incentive Plan, as
amended and restated (the "1998 Plan"). Under the 1998 Plan, 850,000 shares of
common stock are reserved for issuance. The minimum exercise price for options
granted to its existing executives and employee directors under the 1998 Plan is
$14.00 per share and all options granted under the 1998 Plan must be granted at
a premium to market price. In addition, options granted under the 1998 Plan
cannot be repriced without shareholder approval.
NOTE 6 - NET LOSS PER COMMON SHARE
Net loss per common share is computed by dividing the loss
applicable to common shareholders by the weighted average number of common
shares and common shares outstanding during the period.
In February 1997, the FASB issued SFAS No. 128, "Earnings per
Share", which was adopted by the Company effective for the year ended December
31, 1997, as required by the statement. For the periods ended September 30, 1998
and 1997, the potential common shares have an antidilutive effect on the net
loss per common share for common shareholders. Accordingly, diluted net loss per
common share for common shareholders has not been presented. All loss per common
share and share figures have been adjusted to reflect the 1-for-2 reverse stock
split approved by shareholders on March 13, 1998.
-6-
<PAGE> 9
NOTE 7 - NEW ACCOUNTING PRONOUNCEMENTS
In June, 1997, the FASB issued SFAS No. 130, Reporting Comprehensive
Income, which was adopted by the Company effective January 1, 1998, as required
by the statement. The total comprehensive loss for the three months ended
September 30, 1998 and 1997 was $746,736 and $1,766,511 respectively, and for
the nine months ended September 30, 1998 and 1997 was $3,183,117 and $4,853,839
respectively. The adjustment to arrive at the total comprehensive loss for each
period consists of foreign currency translation.
In June 1997, the FASB issued SFAS No. 131, Disclosures about
Segments of an Enterprise and Related Information, which was adopted by the
Company effective for the year beginning January 1, 1998, as required by the
statement. This statement does not require adoption in interim financial
statements in the initial year of adoption.
NOTE 8 - SUBSEQUENT EVENTS
The Company, through its subsidiary EPL Technologies (Europe)
Limited, has agreed in principle to changes in the Company's banking facilities
in the UK. While the term loans of pound sterling710,000 ($1,207,000 at an
exchange rate of pound sterling1:$1.70) will be terminated upon repayment, the
Company and the Bank have agreed that the revolving facility in the amount of
pound sterling400,000 ($680,000 at an exchange rate of pound sterling1:$1.70)
would remain available for future borrowings. In addition, the line of credit
will be increased by pound sterling100,000 to pound sterling250,000 ($425,000 at
an exchange rate of pound sterling1:$1.70). No amounts were outstanding under
the revolving facility or the line of credit, the revolving facility having been
repaid during the three months ended September 30, 1998. The Company expects
during the fourth quarter to formally complete the changes to the credit
facilities. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Liquidity and Capital Resources."
In October 1998, Newcorn received formal approval from The Sholl
Group II, Inc., exclusive licensee of the "Green Giant (R) Fresh" brand from the
Pillsbury Company, of Newcorn's new produce processing facility, located in
Camarillo, California. Following this approval, shipments of fresh-cut corn
under the "Green Giant(R) Fresh" brand commenced in late October 1998. The
Company also announced that work was continuing on a second new 35,000 sq ft
fresh-cut corn processing facility in the Midwest and that, subject to the
approval of this facility as well, Newcorn expects to begin shipping "Green
Giant(R) Fresh" corn products from this facility by the end of 1998. The Company
further announced the relocation of its fresh-cut potato processing activities
from a previously approved, outsourced, co-packer facility in Sacramento,
California, to the new produce processing facility in Camarillo, California.
- 7 -
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
OVERVIEW
The Company is a leading developer and marketer of integrated
produce systems solutions specifically designed to address the needs of the
rapidly growing market for fresh-cut produce. In this regard, the Company
develops, manufactures and markets proprietary produce processing aids,
packaging technologies, and scientific and technical services, which are
specifically designed to maintain the quality and integrity of fresh-cut
produce. The foundation of the Company's integrated systems solutions is its
proprietary produce processing aid technology, which inhibits the natural
enzymatic degradation of fruits and vegetables after they have been processed.
Fresh-cut fruits and vegetables that are treated with the Company's proprietary
processing aids better maintain their natural characteristics such as color,
texture, taste and smell. The use of the Company's processing aids allows for
increased availability of certain fresh-cut produce products, such as sliced
apples, potatoes and corn. The Company has concluded that the use of the
Company's processing aids, in accordance with the Company's recommended
protocols, is "generally recognized as safe" ("GRAS") under FDA regulations. The
Company also uses a variety of film technologies to create packaging
specifically designed to complement and enhance the effectiveness of the
Company's processing aids by allowing fruits and vegetables to "breathe" after
they have been cut and packaged. The Company markets these packaging products to
produce growers and processors. In addition, the Company's scientific and
technical services, which include food safety and microbiological testing,
provide fresh produce processors with expertise in food safety, post-harvest
horticulture and processing techniques, and support the cross-marketing efforts
for the Company's other products. The Company believes its processing aids are
safe and environmentally "friendly" and, together with its packaging and
scientific and technical services, add significant value to the businesses of
its customers. In addition to its integrated systems solutions for fresh-cut
produce, the Company also markets flexible packaging for uses in the snack food,
bakery and confectionery industries and for other uses.
Management is continually searching for new ways to market its
products and services and expand operations, both internally and, where
appropriate, through strategic and opportunistic acquisitions. There can,
however, be no assurance that any acquisition will in fact be consummated or
that any discussions will result in any transaction being consummated.
NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1997
Sales. Sales increased from $14,047,000 in the nine months ended
September 30, 1997 to $24,776,000 in the nine months ended September 30, 1998,
an increase of $10,729,000 or 76%. Sales of processing aids and related
activities increased from $2,098,000 in the nine months ended September 30, 1997
to $6,810,000 in the nine months ended September 30, 1998, an increase of
$4,712,000 or 225%. Sales of US packaging materials increased from $2,048,000 in
the nine months ended September 30, 1997 to $2,608,000 in the nine months ended
September 30, 1998, an increase of $560,000 or 27%. Sales of UK and European
packaging materials grew from $9,901,000 in the nine months ended September 30,
1997 to $15,358,000 in the nine months ended September 30, 1998, an increase of
$5,457,000 or 55%.
The increase in sales of processing aids and related activities was
mainly due to the growth in revenues at Newcorn. This is the first year in which
Newcorn had sales of its fresh-cut corn products in the winter months. Increased
sales activities resulted in Newcorn gaining a number of national accounts.
During the third quarter of 1998 Newcorn relocated its West Coast operations
into a new 74,000 sq ft facility in Camarillo, California. In October 1998, the
Company received formal approval from Sholl, the exclusive licensee of the
"Green Giant(R) Fresh" brand name from the Pillsbury Company, to sell fresh-cut
corn processed at this new facility under the "Green Giant(R) Fresh" brand.
Management expects that sales of fresh-cut corn under the "Green Giant(R) Fresh"
brand will drive further sales growth. Prior to the commencement of sales under
this brand in late October 1998, Newcorn sold fresh-cut packaged corn under two
lesser-known regional brands.
The Company expects that the relocation of Newcorn's West Coast
operations will significantly increase processing capacity and enhance operating
efficiencies. In an effort to leverage processing capabilities and operating
efficiencies, the Company has also relocated its fresh-cut potato processing
activities to the Newcorn facility and has received approval from Sholl to sell
fresh-cut potato products processed at this facility under the "Green Giant(R)
Fresh"
-8-
<PAGE> 11
brand. The Company also believes that a second new 35,000 sq ft facility located
in the Midwest, which is expected to be operational by the end of 1998, will
further increase processing capacity and enable the Company to extend the
geographic reach of its food products.
In addition, the Company is continuing to focus on the sale and
development of its processing aid technologies, particularly with respect to
corn, potatoes and apples. Product testing continues, and in some cases has been
expanded or accelerated, and significant costs have been incurred to date which
have yet to yield material revenues.
The growth in the U.S. packaging materials business was principally
attributable to internal growth of the Company's Respire (R) brand of breathable
packaging for fresh produce, together with sales of perforated film. The sales
increase in the U.K. and Europe of packaging materials was principally
attributable to the inclusion of results of operations of the Company's Spanish
subsidiary, Fabbri Artes Graficas Valencia S.A., ("Fabbri"), which was acquired
in December 1997.
Gross Profit. Gross profit increased from $1,443,000 in the nine
months ended September 30, 1997 to $4,108,000 in the nine months ended September
30, 1998, an increase of $2,665,000 or, as a percentage of sales, from 10.3% to
16.6%. This increase was principally due to (i) the inclusion of results of
operations of Fabbri, (ii) higher sales and margins at Newcorn, (iii) higher
margins at the Company's U.K. packaging operation following the completion in
1997 of the reorganization of the Company's Runcorn and Gainsborough facilities
and (iv) higher margins on the sales of U.S. packaging materials. Gross profit
from period to period may continue to be affected by variations in product mix.
Gross profit from period to period may also be impacted by pricing pressures on
Newcorn's corn business primarily attributable to the extent to which bulk corn
is available in regions where Newcorn's fresh-cut corn products are sold, which
is largely a function of the timing of and variations in regional harvest
yields. Management believes changes in prices of raw materials for its products
have not had a material effect on the Company's results of operations to date;
however, as the Company's business becomes more reliant upon sales of its
processing aids and related activities, results of operations may be more
susceptible to the effects of changing prices due to the pricing of certain
kinds of produce, as well as ingredients used in the Company's processing aids.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased from $4,437,000 in the nine months ended
September 30, 1997 to $5,412,000 in the nine months ended September 30, 1998, an
increase of $975,000 or 22%. This increase was due primarily (i) to incremental
expenses from the inclusion of the results of operations of Fabbri and
California Microbiological Consulting, Inc. ("CMC"), both of which were acquired
after the third quarter of 1997, (ii) the continuing and accelerating
development of the Company's sales and marketing efforts, particularly in the
area of sales of processing aids and related activites for potatoes, corn and
apples, and (iii) other costs, including the hiring of additional personnel.
Research and Development Costs. Research and development costs
increased from $869,000 in the nine months ended September 30, 1997, to
$1,115,000 in the nine months ended September 30, 1998, an increase of $246,000
or 28%. This reflects increased costs of scientific activities related to sales
efforts for large potential customers, principally related to carrots, broccoli,
mushrooms and perforated films. The Company expects that research and
development costs will continue at no less than recent levels and may increase.
Depreciation and Amortization. Depreciation and amortization
increased from $931,000 in the nine months ended September 30, 1997, to
$1,266,000 in the nine months ended September 30, 1998, an increase of $335,000
or 36%. This is a result of the inclusion of nine months of depreciation expense
for Fabbri, as well as from depreciation expense of capital expenditures made at
Newcorn and the Company's UK packaging operations subsequent to the first nine
months of 1997. Amortization expense increased due to the acquisition of CMC and
the admission into Newcorn of Twin Gardens, which occurred subsequent to the
first nine months of 1997, as well as increased amortization of costs of patents
and trademarks as more have been granted during 1998, offset in part by the
completion at December 31, 1997 of the amortization of distribution rights.
Loss from Operations. Loss from operations decreased from $4,795,000
in the nine months ended September 30, 1997 to $3,686,000 in the nine months
ended September 30, 1998, a decrease of $1,109,000 or 23.1%. The decrease was
principally due to the increase in gross profit as a percentage of sales,
together with an increase in total sales. In addition, total operating expenses,
excluding depreciation and amortization, increased at a lower rate than the
growth in sales, as reflected in the decrease of operating expenses as a
percentage of sales, from 38% in 1997 to 26% in 1998. This reflects improved
leveraging of the Company's infrastructure through the
-9-
<PAGE> 12
expansion of the Company's business.
Accretion, Discount and Dividends on Preferred Stock. Accretion,
discount and dividends on preferred stock increased from $411,000 in the nine
months ended September 30, 1997 to $2,619,000 in the nine months ended September
30, 1998, an increase of $2,208,000. The increase principally reflects the
amortization of the beneficial conversion features of the Series D Stock,
accretion of the fair value of warrants issued concurrently with the issuance of
the Series D Stock, and a provision representing a 4% per annum appreciation on
the stated value of the Series D Stock while the Series D Stock remains
outstanding. The amortization and accretion charges, which commenced in the
fourth quarter of 1997, were complete as at September 30, 1998.
THREE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1997
Sales. Sales increased from $5,148,000 in the three months ended
September 30, 1997 to $8,405,000 in the three months ended September 30, 1998,
an increase of $3,257,000 or 63%. Sales of processing aids and related
activities increased from $1,090,000 in the three months ended September 30,
1997 to $2,981,000 in the three months ended September 30, 1998, an increase of
$1,891,000 or 173%. Sales of UK and European packaging materials grew from
$3,365,000 in the three months ended September 30, 1997 to $4,640,000 in the
three months ended September 30, 1998, an increase of $1,275,000 or 38%. Sales
of US packaging materials increased from $692,000 in the three months ended
September 30, 1997 to $784,000 in the three months ended September 30, 1998, an
increase of $92,000 or 13%.
The increase in sales of processing aids and related activities was
mainly due to the higher sales of fresh-cut corn products from Newcorn. During
the quarter, the Company experienced interruptions in processing and shipment
caused by the relocation of its West Coast operations into a new facility, which
management believes prevented the increase in Newcorn's sales from being even
greater. The relocation has significantly increased processing capacity and a
second new facility, located in the Midwest, which is expected to be operational
by the end of 1998, will further increase processing capacity and extend the
geographic reach of Newcorn's fresh-cut corn products.
Management expects that Newcorn's recent introduction of fresh-cut
corn products bearing the "Green Giant(R) Fresh" brand, which were not available
commercially until late October 1998, will drive further sales growth. Prior to
the commencement of sales under the "Green Giant(R) Fresh" brand in late October
1998, Newcorn sold fresh-cut corn products under two lesser known regional
brands
The Company is continuing to focus on the sale and development of
its processing aid technologies, particularly with respect to corn, potatoes and
apples. Product testing continues, and in some cases has been expanded or
accelerated, and significant costs have been incurred to date which have yet to
yield material revenues.
The sales increase in the U.K. and Europe of packaging materials was
principally attributable to (i) the inclusion of results of operations of
Fabbri, although the impact of Fabbri on the Company's results of operations in
the third quarter ws less significant because Fabbri's operations effectively
cease during August due to typical European vacations, and (ii) growth in sales
of the Company's Respire(R) brand of breathable packaging for fresh produce. The
increase in sales of US packaging materials was mainly due to the growth in
sales of perforated film.
Gross Profit. Gross profit increased by $602,000 to $1,177,000 in
the three months ended September 30, 1998, an increase of 105% over the three
months ended September 30, 1998. Expressed as a percentage of sales, gross
profit increased to 14% from 11.2%. The 105% increase in gross profit for the
third quarter of 1998 significantly exceeded the 63% increase in sales and was
attributable to increased sales volumes which leverage the Company's cost base,
as well as a more profitable sales mix. Gross profit from period to period may
continue to be impacted by variations in product mix. Gross profit from period
to period may also be impacted by pricing pressures on Newcorn's corn business
primarily attributable to the extent to which bulk corn is available in regions
where Newcorn's fresh-cut corn products are sold, which is largely a function of
the timing of and variations in regional harvest yields. Management believes
changes in prices of raw materials for its products have not had a material
effect on the Company's results of operations; however, as the Company's
business becomes more reliant upon sales of its processing aids, results of
operations may be more susceptible to the effects of changing prices due to the
pricing of certain kinds of produce, as well as ingredients used in the
Company's processing aids.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses fell $85,000 or 4.9% to $1,648,000 in the three months
ended September 30, 1998, despite the addition of expenses from the acquisition
of Fabbri and, to a lesser extent, that of CMC, both made subsequent to the
third quarter of 1997, and
-10-
<PAGE> 13
despite the expense of intensifying sales and marketing efforts. Management
credits these results to successful cost containment programs and to the
effective integration of these acquisitions, while still achieving a significant
increase in sales. This is also demonstrated by the fall in overheads (selling,
general and administrative expenses plus research and development costs), as a
percentage of sales, which fell from 39% in 1997 to 23.5% in 1998.
Research and Development Costs. Research and development costs
increased from $284,000 in the three months ended September 30, 1997, to
$326,000 in the three months ended September 30, 1998, an increase of $42,000 or
14.8%. During the quarter the Company launched its Respire(R) brand of flexible
packaging for fresh produce in the UK, which required the provision of
scientific support to its customers. The increased cost also reflects increased
costs of scientific activities related to sales efforts for large potential
customers, principally related to carrots, broccoli, mushrooms and perforated
films. The Company expects that research and development costs will continue at
not less than recent levels and may increase.
Depreciation and Amortization. Depreciation and amortization
increased from $329,000 in the three months ended September 30, 1997, to
$461,000 in the three months ended September 30, 1998, an increase of $132,000
or 40%. This is a result of the inclusion of depreciation expense for Fabbri, as
well as from the previous capital expenditures at Newcorn the Company's UK
packaging operations made subsequent to the third quarter of 1997. Amortization
expense increased due to the acquisition of CMC and the admission into Newcorn
of Twin Gardens, which occurred subsequent to the third quarter of 1997, offset
in part by the completion at December 31, 1997 of amortization of distribution
rights. It also includes increased amortization of patents and trademarks,
reflecting the granting of additional patents since the third quarter of 1997.
The Company now has three US patents and six overseas patents, with numerous
others pending.
Loss from Operations. Loss from operations decreased from $1,772,000
in the three months ended September 30, 1997 to $1,258,000 in the three months
ended September 30, 1998, a decrease of $514,000 or 29%. The decrease was
principally due to the increase in sales and gross profit, together with the
increase in the gross profit percentage. In addition, total operating expenses,
excluding depreciation and amortization, increased at a lower rate than the
growth in sales, as reflected in the decrease of operating expenses as a
percentage of sales, from 39% in 1997 to 23.5% in 1998. A substantial portion of
the loss at the EBITDA level was attributable to the considerable expense of
sales and marketing efforts incurred in developing the Company's potato
business.
Accretion, Discount and Dividends on Preferred Stock. The accretion,
discount and dividends on preferred stock increased from $92,000 in the three
months ended September 30, 1997 to $265,000 in the three months ended September
30, 1998, an increase of $173,000. The increase principally represents the
effect of a provision representing a 4% per annum appreciation on the stated
value of the Series D Stock while the Series D Stock remains outstanding,
together with the final amounts of amortization of the beneficial conversion
features of the Series D Stock, and accretion of the fair value of warrants
issued in connection with the issuance of the Series D Stock. The amortization
and accretion charges, which commenced in the fourth quarter of 1997, are now
complete.
YEAR 2000 COMPLIANCE
The term "year 2000 issue" is a general term used to describe the
various problems that may result from the improper processing of dates and the
performance of date-sensitive calculations by computers and other equipment as
the year 2000 is approached and reached
The Company uses a number of computer software programs and
operating systems in its internal operations, including applications used in
manufacturing, product development, financial business systems and various
administrative functions. The Company is currently evaluating the programs and
systems in an effort to identify and assess the anticipated impact of year 2000
issues. The Company has also initiated formal communications with its critical
suppliers, customers and business partners to determine the extent to which the
Company may be vulnerable in the event those parties fail to properly remediate
their own year 2000 issues. The Company currently intends to substantially
complete its identification of year 2000 issues reasonably expected to have a
material impact on the Company's operations by the end of 1998 and to
substantially complete any required remediation prior to June 30, 1999.
Based on its current estimates and information currently available,
the Company does not anticipate that the costs associated with year 2000 issues
will have a material adverse effect on the Company's business, financial
condition or results of operations. There can be no guarantee, however, that
these costs will not be material.
-11-
<PAGE> 14
As the Company has not yet completed its assessment of year 2000
issues impacting its business, the Company has not yet fully developed year
2000-specific contingency plans. The Company currently believes that it will be
able to modify, replace or mitigate its affected systems in time to avoid any
material detrimental impact on its operations, and indeed, where appropriate,
has already begun this process. If the Company determines that it may be unable
to remediate and properly test affected systems on a timely basis, the Company
intends to develop appropriate contingency plans at the time such determination
is made. The Company also intends to monitor the progress made by critical
suppliers, customers and business partners in addressing their own year 2000
issues and develop appropriate contingency plans in the event that a significant
exposure is identified.
While the Company is not presently aware of any significant year
2000 issues reasonably expected to affect its business, there can be no
assurance that year 2000 issues affecting the Company or any of its critical
suppliers, customers and business partners will be remediated before the year
2000 arrives, or that contingency plans will sufficiently mitigate the risk
associated with any such year 2000 issues. An interruption of the Company's
ability to conduct business due to a year 2000 issue could have a material
adverse effect on the Company.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1998, the Company had $6,004,000 in cash and short
term investments, compared with $3,757,000 at December 31, 1997, an increase of
$2,247,000. During the nine months ended September 30, 1998, $4,110,000 was used
in operating activities. In addition, a net $3,408,000 was used in investing
activities to purchase fixed assets, mainly in support of the corn and potato
businesses, but also in connection with the UK and European packaging
businesses. The increase in cash used in operating activities of $253,000 in the
nine months ended September 30, 1998 compared to the same period in 1997
reflects increased working capital needs as the business has grown, offset by a
lower net loss and higher noncash expenditures.
Total financing activities during the nine months ended September
30, 1998 provided $9,765,000, compared with $4,145,000 provided in the same
period in 1997. In 1998 $6,726,000 was raised in net proceeds from the Company's
public offering completed in May 1998, together with $852,000 raised from the
exercise of previously issued stock options and warrants. New long term debt
totaled $3,070,000, comprised of $1,937,000 from the new Spanish facility
(described below) and the balance from equipment lease financing. An aggregate
of $883,000 of long term debt was repaid, including $680,000 (pound
sterling400,000 at an exchange rate of pound sterling1:$1.70) ) to the Bank of
Scotland (described below).
At September 30, 1998, the Company had warrants outstanding and
exercisable to purchase 284,132 shares of common stock at a weighted average
price of $16.72 per share, which, if exercised, would provide the Company with
gross proceeds of approximately $4,750,000. In addition, at September 30, 1998,
the Company had 1,924, 500 options outstanding and exercisable to purchase
shares of common stock at a weighted average price of $9.31 per share, which, if
exercised, would provide the Company with gross proceeds of up to approximately
$17,917,000. There can be no assurance that any such warrants or options in fact
will be exercised. At September 30, 1998, commitments for capital expenditures
totalled $750,000, primarily relating to Newcorn and the Company's UK packaging
operations.
The Company, through its subsidiary EPL Technologies (Europe)
Limited ("EPL Europe"), has a line of credit in the amount of pound
sterling150,000 ($255,000 at an exchange rate of pound sterling1:$1.70) with the
Bank of Scotland as part of its credit facility for the Company's U.K.
operations (the "U.K. Credit Facility"). There were no amounts outstanding under
this facility at September 30, 1998. The U.K. Credit Facility also contains two
term loans and a revolving facility, under which pound sterling710,000
($1,207,000 at an exchange rate of pound sterling1:$1.70) and pound sterling0
respectively, were outstanding as of September 30, 1998, the revolving facility
of pound sterling400,000 ($680,000 at an exchange rate of pound sterling1:$1.70)
having been repaid during the three months to September 30, 1998. The U.K.
Credit Facility is secured by the assets of the Company's U.K. subsidiaries. The
Company and the Bank of Scotland have agreed in principle the terms of new
credit facilities and the Company has deposited with the Bank of Scotland
sufficient cash to repay the outstanding amounts under the term loans, which
will be terminated upon repayment. The Company and the Bank have agreed that the
revolving facility, in the amount of pound sterling400,000 ($680,000 at an
exchange rate of pound sterling1:$1.70), will remain available for future
borrowings. In addition, the line of credit will be increased by pound
sterling100,000 to pound sterling250,000 ($425,000 at an exchange rate of pound
sterling1:$1.70). The Company expects to formally complete the new credit
facilities during the fourth quarter. The existing UK Credit Facility contains
certain covenants applicable to the results of operation of the businesses of
EPL
-12-
<PAGE> 15
Europe and its subsidiaries, which provide for maintenance of minimum
earnings before income taxes and asset levels.
In addition, in July 1998, the Company, through its Spanish
subsidiary Fabbri, finalized with BankInter an unsecured line of credit for
Spanish PTS 275,000,000 ($1,937,000 at an exchange rate of PTS142:$1). This
facility was drawn in full as at September 30, 1998. The facility carries an
interest rate of 0.3% over BankInter base rate (4.25% as at September 30, 1998).
There are no covenants applicable to the facility.
Historically, the Company's revenues have not been sufficient to
fund the development of the Company's business, and thus it has had to finance
its operating losses externally principally through equity financing. The
Company's management believes that cash flows from consolidated operations and
existing resources, together with the remaining proceeds of the Company's recent
public offering, will be sufficient to meet the Company's operating needs for
the next twelve months. The Company may, however, be required to seek additional
debt or equity financing to implement its growth strategy, including the pursuit
of acquisitions that either expand or complement its existing lines of business.
-13-
<PAGE> 16
FORWARD LOOKING STATEMENTS
Statements in the foregoing discussion that are not statements of
historical fact and reflect the intent, belief or expectations of the Company
and its management regarding the anticipated impact of events, circumstances and
trends should be considered forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. These forward-looking
statements are not guarantees of future performance, and actual results may vary
materially from those projected in the forward-looking statements. Meaningful
factors that might affect such results include, but are not limited to: a) the
Company's needs for capital, including for acquisitions, which needs have been
and are expected to continue to be substantial, and its potential inability to
obtain additional financing on satisfactory terms, b) the Company's product
development and sales process, which is lengthy and resource intensive, c) the
uncertainty of demand for, or the market acceptance of, the Company's products
and services, d) the Company's limited resources and experience in marketing and
selling its products and services, e) personnel resources and production
requirements and potential difficulties in cross-marketing and managing multiple
product lines, f) the Company's potential inability to identify and acquire
acceptable acquisition targets, to the extent necessary to fulfill its expansion
plans, and its potential inability to successfully integrate any such
acquisitions into its operations, g) potential product obsolescence and short
product life cycles, h) potential competition, particularly in the market for
produce packaging, from companies with greater financial, management and other
resources, i) the unpredictability and volatility of the market for agricultural
products, j) changes in U.S. and foreign regulation, k) difficulty with research
and development and sales and marketing activities regarding new and existing
products, including extension of necessary time periods or increase in expense
for product introduction and market penetration, l) potential difficulties in
obtaining or protecting intellectual property rights or the infringement of
proprietary or other rights of the Company by third parties, m) raw material
availability and pricing, n) loss of services of key employees of the Company
and o) delays in the Company's ability to bring into production Newcorn's new
processing facilities, as well as other information contained in the Company's
other filings with the Securities and Exchange Commission.
-14-
<PAGE> 17
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's annual meeting of shareholders held on
September 29, 1998, shareholders re-elected Paul L. Devine (10,623,649 votes in
favor, 271,717 votes withheld), Robert D. Mattei (10,624,624 votes in favor,
270,742 votes withheld) and Al S. Clausi (10,619,630 votes in favor, 275,736
votes withheld) as directors of the Company. The shareholders also approved the
1998 Stock Incentive Plan, as amended and restated, with 4,353,192 votes in
favor, 81,710 votes against and 29,643 votes abstaining.
ITEM 5. OTHER INFORMATION.
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
a) Exhibits
Exhibit 11.0 - Computation of Loss per share
Exhibit 10.24 - Employment agreement dated as of May
1, 1998 by and between Fabbri Artes Graficas
Valencia SA and Jose Saenz de Santa-Maria.
Exhibit 10.25 - Employment agreement dated as of
July 1, 1998, by and between EPL
Technologies, Inc. and R. Brandon Asbill.
b) Reports on Form 8-K
None
-15-
<PAGE> 18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,as amended,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EPL TECHNOLOGIES, INC.
Date: November 13, 1998 /s/ Paul L. Devine
-----------------------------------------------
Paul L. Devine
Chairman, President and Chief Executive Officer
(Principal Executive Officer)
Date: November 13, 1998 /s/ Bruce M. Crowell
---------------------------------------------
Bruce M. Crowell
Vice President and Chief Financial Officer
(Principal Financial Officer)
Date: November 13, 1998 /s/ Timothy B. Owen
--------------------------------------------
Timothy B. Owen
Treasurer and Assistant Secretary
(Principal Accounting Officer)
-16-
<PAGE> 1
Exhibit 10.24
Employment agreement dated as of July 1, 1998
by and between Fabbri Artes Graficas Valencia SA
and Jose Saenz de Santa Maria
<PAGE> 2
DATED 1 MAY 1998
(1) FABBRI ARTES GRAFICAS VALENCIA S.A.
(2) JOSE SAENZ DE SANTA-MARIA
---------------------------------
SERVICE AGREEMENT
---------------------------------
<PAGE> 3
CONTENTS
<TABLE>
<CAPTION>
CLAUSE HEADING PAGE
<S> <C> <C>
1. JOB TITLE......................................................................................1
2. DURATION ......................................................................................2
3. HOURS OF WORK..................................................................................2
4. SALARY.........................................................................................2
5. COMPANY CAR....................................................................................3
6. PLACE OF WORK..................................................................................3
7. EXPENSES.......................................................................................4
8. ASSIGNMENT ....................................................................................4
9. RESTRICTIONS ..................................................................................4
10. SICKNESS AND SICK PAY..........................................................................5
11. TERMINATION OF EMPLOYMENT......................................................................5
12. NORMAL RETIREMENT AGE..........................................................................6
13. DISCIPLINARY AND GRIEVANCE PROCEDURE...........................................................6
14. CONFIDENTIAL INFORMATION.......................................................................6
15. JURISDICTION...................................................................................7
16. LANGUAGE.......................................................................................7
</TABLE>
<PAGE> 4
THIS AGREEMENT is made the tenth day of July 1998
BETWEEN:
(1) DERRICK W LYON with Passport Number GBR 016240661 whose address is
at Nook House, Off Cliffe Lane, Acton Bridge, Northwich, Cheshire,
CW8 3QP, UK, acting as joint director of FABBRI ARTES GRAFICAS
VALENCIA, SA (the "COMPANY") with Tax identity code number C.I.F.
A-46030300, whose registered office is at Avda Comarques del Pais
Valencia 56, 46930, Quart de Poblet, Valencia, Spain; acting as
the representative of the sole director by virtue of the
appointment of EPL TECHNOLOGIES SRL as sole director, in a
Shareholders Meeting dated 10 July 1998 authorised by the notary
of Valencia Mr Carlos Pascual de Miguel, and registered with the
Commercial Registry of Valencia; and
(2) JOSE SAENZ DE SANTA-MARIA of lawful age, married (the "EXECUTIVE")
with National Identity Card number 50293753-K and address at Paseo
de la Isla 39, 2D, 09003 Burgos, Spain.
RECITALS
A) The Company is interested in entering into a service contract
appointing a managing director of the Company. The service
contract is regulated by the Real Decreto 1382/1985 of 1st of
August.
B) DERRICK W LYON as the representative of the Company, agrees to
enter into this Agreement on behalf of the Company.
C) Both parties acknowledge that each have the legal capacity to
enter into this Agreement, and that they enter into their
obligations freely.
NOW IT IS HEREBY AGREED as follows:
1. JOB TITLE
1.1 The Company will employ the Executive as Managing Director of the
Company. The Executive's duties will include all work normally
associated with his title and such additional duties as the
Company may reasonably require of him from time to time.
1.2 The Executive agrees to perform the post of Managing Director of
the Company, performing his functions with full autonomy and
liability which may only be limited at the instigation of any of
the joint directors of the company and the Chief Executive
Officer, EPL Technologies (Europe) Limited ("CEO Europe").
1.
<PAGE> 5
1.3 Notwithstanding the provisions of Clause 1.1 the specific function
of the Executive will be Technical and Commercial Managing
Director.
2. DURATION
This Agreement has an indefinite duration. The Parties agree that
it is fully binding and as a consequence it entered into effect
from the 1st day of May 1998. Either party can terminate this
Agreement upon the giving of six months notice to the other party.
3. HOURS OF WORK
3.1 The Executive's normal working hours shall be from 9 am to 7 pm
Monday to Friday with 2 hours for lunch. The Executive will be
required to work any reasonable additional hours as are necessary
for the proper performance of his duties and with no entitlement
to over time.
3.2 The Executive will be entitled to thirty 30 days paid holiday per
calendar year, including all the Spanish national holidays.
3.3 Holiday entitlement may not be carried forward to the next
calendar year without the prior written consent of the Company.
3.4 As early as possible, (and in any event before making any
arrangements), the Executive should indicate his intended holiday
dates to his immediate superior and obtain his consent.
3.5 If the Executive ceases his employment during a calendar year his
holiday entitlement in that year will be allocated pro rata. The
Executive will report to anyone of the joint directors of the
Company and to the Chief Executive Officer, EPL Technologies
(Europe) Limited ("CEO Europe").
3.6 The Executive may subsequently be required to work for other
individuals in substitution for and /or in addition to the CEO
Europe.
4. SALARY
4.1 The Executive shall receive a basic salary at the rate of
20.000.000pts (twenty million pesetas) per annum gross to be paid
by equal monthly installments.
4.2 The Executive's salary will be reviewed annually in January,
however the Company does not have any obligation to award an
increase.
4.3 Any benefit received by the Executive hereunder will be disclosed
to the relevant tax authorities in compliance with the prevailing
legislation and the Executive hereby undertakes to be responsible
for the payment of any and all tax accruing by virtue of the
provision of such benefits.
2.
<PAGE> 6
4.4 The Company and the Executive will agree a bonus to be paid
annually. The Executive's exact targets will be agreed on an
annual basis, and a bonus will be paid based on achievement of
these agreed targets. It is envisaged that a bonus of up to 10% of
the Executive's basic salary will be awarded for achievement of
the Company's sales targets and up to 10% of the Executive's basic
salary will be awarded for achievement of the Company's net profit
targets. An additional bonus will be awarded for achievement of a
net profit for the Company in excess of the net profit targets.
4.5 The Company has paid the Executive a subscription to the Company
health scheme for himself and his wife and children.
4.6 In addition, the Company has lent the Executive the amount of
450.000 pesetas. The Executive shall repay this amount over a
period of 12 months, with a deduction of 37,500 pesetas per month
from his net salary. This amount is only to be used by the
Executive for the payment of school fees or related costs for
members of his family.
5. COMPANY CAR
5.1 The Company has made available to the Executive for his business
and personal use a motor car of a make and model which is in line
with the Company's current policy. The monthly total cost of hire
of such a motor car shall not exceed 135.000 pesetas.
5.2 The Company shall bear the cost of issuing, servicing, taxing,
repairing and maintaining the vehicle and shall pay the petrol for
both business and private use.
5.3 Immediately upon the termination of his employment hereunder
(howsoever arising) the Executive shall if requested by the
Company return the car in good condition together with its keys
and all documents relating to it to the Company forthwith at its
principal place of business or as otherwise directed by the
Company.
5.4 Without prejudice to the provisions of Clause 5.3, in the event of
the Executive's employment being terminated by the Company, other
than for gross misconduct, the Executive may at the Company's
discretion be allowed to retain the car for his notice period.
Should the Executive not be required to work his notice he will be
responsible for the cost of routine servicing and petrol during
this period. Alternatively, the Company will compensate the
Executive for the loss of this benefit.
6. PLACE OF WORK
6.1 The Executive's place of work shall be in Valencia. The Company
may also require him to work at any other location either on a
permanent or temporary basis.
6.2 In the event of a permanent transfer being proposed by the
Company, the Company will provide the Executive with sufficient
information to enable him to make a decision as to the
desirability of such a transfer. This information will include all
aspects of remuneration, transfer expenses and all other related
costs.
3.
<PAGE> 7
6.3 To enable the Executive to carry out his position as Managing
Director, the Company has assisted with the rental costs of a
house. This finance assistance cannot exceed 120.000pts (One
hundred and twenty thousand pesetas) per month. The Company will
pay 50% of the actual cost incurred in the first year of
employment, 25% in the second year of employment. No further
amounts will be paid after the third year.
6.4 The reasonable and directly incurred removal costs to its place of
work has already been born by the Company.
7. EXPENSES
7.1 The Company shall reimburse the Executive the amount of all
reasonable expenses properly incurred by him in the performance of
his duties, subject to compliance with the appropriate procedures
and to his production, if required, of appropriate vouchers or
receipts satisfactory to the Company.
8. ASSIGNMENT
8.1 The Company shall be entitled to assign or transfer its respective
rights and obligations arising under this contract to any of its
associates or related companies within the EPL Group of companies,
without the consent of the "Executive", provided that the Company
demonstrates to the reasonable satisfaction of the "Executive",
that the proposed assignee has adequate financial and legal
ability to observe and perform the obligations to be assigned.
9. RESTRICTIONS
9.1 In the event of the Executive resigning from his employment with
the Company the Executive shall not if requested by the Company
for a period of 12 months following the termination of his
contract of employment directly or indirectly:
(a) solicit or attempt to solicit the custom or business of
any third party who is a customer of the Company. For
the purpose of this clause "a Customer" is defined as
any third party who, in the preceding 12 months had
placed an order for goods or services with the Company;
and
(b) carry on or assist with any business related or similar
to the gas flame process of perforating plastic films,
the hot needle process or any other packaging or film
perforating or related techniques including any new
techniques developed or in the process of development
prior to the Executive's resignation. This clause shall
extend to the United Kingdom, and members of the
European Union, Morocco and the United States of
America.
9.2 Paragraphs 9.1(a) and 9.1(b) above, will also apply in the event
of the Executive being dismissed following action arising from the
Company's disciplinary procedures and the Spanish labour
legislation in force at that particular time, or if the Executive
is made redundant.
4.
<PAGE> 8
9.3 If the company exercises its option under Clause 9.1(a) and
prevents the Executive from working for a third party who is
related to the Company's business as defined, the Company will pay
you the Executive 5,000.000 pesetas as compensation for preventing
him from working for such a third party during the 12 month
period.
9.4 In addition, if this agreement is terminated and the company
exercises its option under 9.1, the Executive will be bound by the
confidentiality letter, which is attached to this agreement as
Exhibit 1.
10. SICKNESS AND SICK PAY
10.1 If the Executive is absent from work due to illness or injury or
for any other reason he must notify his immediate superior or such
other person as may be notified to him for this purpose from time
to time before 10.00 am or as soon as reasonably possible of his
first day of absence and give the expected duration of his
absence.
10.2 If the Executive is absent from work for more than seven
consecutive days (including Saturdays and Sundays) due to illness
or injury he must obtain a doctor's certificate and produce or
arrange for it to be produced immediately to his immediate
superior or such other person as may be notified to him for this
purpose from time to time. If the Executive is absent further
thereafter, a doctor's certificate must be produced each seven
days.
10.3 If the Executive is absent from work due to illness or injury he
will be paid Company sick pay on the following basis:
(c) payment of his full basic salary until he receives such
benefits as he may be entitled to under the Company's
existing permanent health care scheme;
(d) any sick pay paid by the Company will include any
Statutory Sick Pay entitlement and will be reduced by
the amount of any social security benefits recoverable
by the Executive in respect of his illness or injury;
(e) Paragraphs 10.3(a) and (b) shall apply without
prejudice to the Spanish Labour Law in force.
11. TERMINATION OF EMPLOYMENT
11.1 Subject to Clause 2 the Executive's employment may be terminated
by the Executive giving the Company 6 months notice in writing. In
the event of non performance of this duty of notice, the Company
has the right to an amount equal to the corresponding salaries of
the period.
11.2 Subject to Clause 2 the Executive's employment may be terminated
by the Company giving the Executive 6 months notice in writing. In
the event of non performance of this duty of notice, the Executive
has the right to an amount equal to the corresponding salaries of
the period.
5.
<PAGE> 9
11.3 On termination of employment, howsoever arising, or at any time
requested by the Company, the Executive shall immediately return
all relevant information, material, documents, and property
belonging to the Company and in the Executive's safekeeping
without retaining copies, samples or records thereof. In addition
the Executive is to be bound by the confidentiality letter which
is attached to this agreement as Exhibit 1.
11.4 This Agreement may be terminated by:
(f) the Company;
(g) the Executive of the Company
(h) In the event of termination by either the Company or
the Executive, Articles 10, 11 and 12 of Royal Decree
1382/1985 of August 1st, or any other Law which may
amend this from time to time shall apply to this
agreement.
Subject to clause 2 if the Company terminates the agreement the
Executive will be entitled to a compensation equal to 15 months'
salary in addition to the notice period agreed between the Parties
of this Agreement.
12. NORMAL RETIREMENT AGE
12.1 The Executive's normal retirement age will be 65 and his
employment will automatically terminate on the Executive reaching
this age, without prejudice to the Spanish Labour Law in force.
13. DISCIPLINARY AND GRIEVANCE PROCEDURE
13.1 Where the Company is dissatisfied with his performance it will
initially refer the matter for discussion between the Executive
and the CEO Europe. If this does not resolve the matter to the
Company's satisfaction then the Executive will receive a formal
written warning from the CEO Europe or the Board.
13.2 If the Executive is dissatisfied with any disciplinary decision or
if he wishes to seek redress for any grievance relating to his
employment, he should first apply in writing to the CEO Europe and
thereafter he may appeal in writing to the Board of Directors
within seven days of being notified by the CEO Europe of his
decision.
13.3 Clauses 13.1 and 13.2 shall apply without prejudice to the Spanish
Labour Law in force.
14. CONFIDENTIAL INFORMATION AND INTELLECTUAL PROPERTY
14.1 The Executive will not, except in the proper course of his duties
to the Company either during or after the end of his employment,
divulge or communicate to any person, firm or company, or
otherwise make use of, any information of a secret or confidential
nature of
6.
<PAGE> 10
which the Executive has taken into his possession during
his employment, which relates to the Company or any of its
associated companies or any third party.
14.2 The Executive acknowledges that all intellectual property rights
including all renewals and extensions thereof originated or
developed by him (whether alone or jointly with any person or
persons) at any time during his employment with the Company
whether before or after the date hereof shall belong to and vest
in the Company absolutely to the fullest extent permitted by law
and to such end the Executive undertakes, at the request and
expense of the Company, to execute all such documents and give all
such assistance as in the opinion of the Company as may be
necessary or desirable to vest any such intellectual property
rights therein in the Company absolutely and hereby assign by way
of present assignment of future copyright all copyright in any
copyright works produced or originated by him during his
employment.
14.3 The executive acknowledges to be bound by the terms of
confidentiality letter which is attached to this agreement as
Exhibit 1.
15. JURISDICTION
15.1 Agreement shall be governed by and construed in accordance with
the Spanish Labour Law in force and the parties agree to submit to
the non-exclusive jurisdiction of the Spanish Courts.
16. LANGUAGE
16.1 This Agreement has been drafted in the Spanish Language, a
translation into the English Language is attached hereto as
Exhibit 1. The Spanish version of this Agreement shall prevail in
all cases.
7.
<PAGE> 11
IN WITNESS whereof the Company has signed this Agreement under the hand of
an authorised official and the Executive has executed this Agreement in
his own name on his own behalf
SIGNED by DERRICK LYON ) /S/ DERRICK W LYON
duly authorised for and on behalf of )
FABBRI ARTES GRAFICAS VALENCIA, SA )
(THE COMPANY) )
EXECUTED by JOSE SAENZ DE SANTA-MARIA
)
(THE EXECUTIVE) )
/s/ JOSE SAENZ DE SANTA MARIA
8.
<PAGE> 12
EXHIBIT 1
CONFIDENTIALITY LETTER
To:Mr Derrick William Lyon
Joint Director of
FABBRI ARTES GRAFICAS VALENCIA, S.A.
Avda Comarques del Pais Valencia 56
46930 Quart de Poblet
Valencia, Spain
and
EPL TECHNOLOGIES INC
2 International Plaza
Suite 245
Philadelphia PA 19113-1507 USA
Date 1st May 1998
Dear Sirs
CONFIDENTIAL INFORMATION AND CERTAIN UNDERTAKINGS
1. DEFINITIONS
I agree that for the purposes of this letter the following definitions
will apply:
"advisors" will mean lawyers, accountants, auditors, financial advisors
and bankers;
"the Company" will mean the FABBRI ARTES GRAFICAS VALENCIA, S.A. and any
subsidiary, associated or holding company of the Company;
"Confidential Information" will mean all information of whatever nature
including without limitation all unpatented designs, drawings, data
specifications and manufacturing processing or testing procedures and
other technical business and similar information including all readable
or computer or other reactive readable data, logic, diagrams, flow
charts, coding source or object codes listing or other material relating
to or comprising software conceived, originated, made or developed by the
Company and its subsidiaries in written pictorial or oral form.
"Customer" will mean any person, firm or company who at any time during
the period of TWO years immediately prior to the Termination Date was a
customer of the Company being a person, firm or company with whom I
personally dealt or for whom I was responsible on behalf of the Company
during the said period.
"Entry into force" will mean the 1st May 1998.
9.
<PAGE> 13
"Goods or Services" will mean any goods or services similar to or
competitive with those supplied by the Company at any time during the two
years immediately prior to the Termination Date and with the supply of
which I was concerned at any time during the said period.
"Key Person" will mean a person who is or was at any time whilst I was
employed by the Company:
(a) an employee, director, consultant or contractor of the
Company; and
(b) a person with whom I personally dealt during my employment
by the Company; and
(c) employed or engaged in a managerial or equivalent capacity
or in a more senior capacity.
"Key Supplier" will mean any person, firm or company who at any time
during the period of TWO years immediately prior to the Termination Date
was a principal supplier of the Company being a person, firm or company
with whom I personally dealt on behalf of the Company during the said
period of TWO years.
"Restricted Business" will mean the business of Packaging and Labelling
food products.
"Restricted Area" will mean any territory where I have been employed
under my Service Agreement at any time during the ONE YEAR immediately
prior to the Termination Date.
"Restricted Period" will mean for the purposes of this letter 12 months
immediately following the Date of Termination of my employment.
"Service Agreement" will mean my employment contract with the Company
dated first October 1997. .
"Termination Date" will mean the date on which my employment with the
Company terminates.
2. CONFIDENTIAL INFORMATION
2.1 I agree that all the Confidential Information and other
material of whatsoever nature made, originated or developed
by me in the course of and in connection with my employment
with the Company either before or after the date hereof will
belong to and rest in the Company absolutely to the fullest
extent permitted by law.
2.2 I undertake to keep in confidence the Confidential
Information of whatever nature relating to the Company
whilst I am a Director and/or employee of the Company as may
be provided to me (whether orally or in writing or in any
other manner).
10.
<PAGE> 14
2.3 I undertake that after the Termination Date not to disclose
or publish to any person or negligently cause any
unauthorised disclosure of any information of a confidential
or secret nature which I may acquire one year before or in
the course of my employment with the Company (including
without limitation trade secrets, know how, inventions,
designs, processes, formulae, notations, improvements and
financial information) concerning the affairs or business or
products of the Company or of any of its or their
predecessors in business or of any third party to whom the
Company is under an obligation of confidence such as
suppliers, agents, distributors or auditors.
2.4 I further undertake that in the event that I cease to be
employed by the Company for whatever reason that I will:
(a) not divulge the Confidential Information to any person;
(b) treat all Confidential Information as strictly private and
confidential and will take all necessary steps (including
but not limited to those required by Spanish law) to
preserve such confidentiality on your behalf;
(c) return promptly to you upon demand the documents and
materials arising in relation to the Confidential
Information together with all copies or reproductions held
by me or my advisors.
3. UNDERTAKINGS
After the termination of my employment with the Company, I will not
either alone or jointly with or on behalf of any other person firm or
company, directly or indirectly as principal, partner, agent,
shareholder, director, employee, consultant or otherwise however:
(a) at any time during the Restricted Period carry on or assist
with or be interested in the carrying on of a Restricted
Business within the Restricted Area in competition with the
Company;
(b) at any time during the Restricted Period supply (or procure
or assist the supply of) any Goods or Services to any
Customer if such supply is in respect of Goods or Services
in competition with the Company;
(c) at any time during the Restricted Period canvass or solicit
the custom of (or procure or assist the canvassing or
soliciting of the custom of) any Customer if such canvassing
or solicitation is in respect of Goods or Services in
competition with the Company;
(d) at any time during the Restricted Period in competition with
the Company immediately following the Termination Date:
(i) offer employment to or employ or offer or
conclude any contract for services with or
solicit the employment or engagement of; or
11.
<PAGE> 15
(ii) procure or assist any third party so to offer,
employ, engage or solicit:
any Key Person (whether or not such person would commit any
breach of his contact with the Company) unless such Key
Person had ceased to be employed or engaged by the Company
(as the case may be) more than 3 months previously;
(e) at any time during the Restricted Period in competition with
the Company canvass or solicit any Key Supplier to supply
Goods or Services to me or any person firm or company or
arrange for any Key Supplier to supply Goods or Services to
me or any person firm or company if such supply is in
respect of Goods or Services to be supplied in the
Restricted Area.
4. WAIVER
I acknowledge that no failure or delay by either of you in exercising any
right, power or privilege under this letter will operate as a waiver nor
will any single or partial exercise preclude any further exercise by
yourselves of any rights either of you may have under this letter.
5. INJUNCTION AND INDEMNITY
Without prejudice to any other rights or remedies either of you may have,
I acknowledge and agree that damages will not be an adequate remedy for
any breach by me of any of the provisions of this letter and accordingly
each of you will be entitled without proof of special damages to the
remedies of an injunction and other equitable relief for any threatened
or actual breach of the provisions of this letter by me.
I will indemnify each of you in respect of all damages, costs, claims,
demands and liabilities howsoever so arising out of any breach by me of
my obligations under this letter.
6. GOVERNING LAW
This letter will be governed by and construed in accordance with the laws
of Spain.
Yours faithfully
/S/ JOSE SAENZ DE SANTA-MARIA
JOSE SAENZ DE SANTA-MARIA
12.
<PAGE> 1
Exhibit 10.25
Employment agreement dated as of July 1, 1998
by and between EPL Technologies, Inc. and R. Brandon Asbill
<PAGE> 2
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and
entered into as of this 1st day of July, 1998, by and between EPL Technologies,
Inc., a Colorado corporation (hereinafter called "Company"), and R. Brandon
Asbill, an individual (hereinafter called "Employee").
W I T N E S S E T H:
WHEREAS, Company wishes to employ Employee and Employee wishes
to enter into the employ of Company on the terms and conditions contained in
this Agreement.
NOW, THEREFORE, in consideration of the facts, mutual promises
and covenants contained herein and intending to be legally bound hereby, Company
and Employee agree as follows:
1. Employment. Company hereby employs Employee and
Employee hereby accepts employment by Company for the period and
upon the terms and conditions contained in this Agreement.
2. Office and Duties.
(a) Employee shall serve Company generally as
Vice President and General Counsel, reporting to the Company's Chief Executive
Officer, and shall have such authority and such responsibilities as are
consistent with the position of Vice President and General Counsel and as
Company reasonably may determine from time to time. Employee shall perform any
other executive and/or managerial duties reasonably required by Company and, if
requested by Company, shall serve as an officer or director of Company without
additional compensation.
(b) Throughout the term of this Agreement,
Employee shall devote substantially his entire working time, energy, skill and
best efforts to the performance of his duties hereunder in a manner which will
faithfully and diligently further the business and interests of Company;
provided, however, that Employee may engage in such other business activity as
is set forth in Exhibit A attached hereto; provided, further, that such activity
set forth on Exhibit A, in the aggregate, does not, in the reasonable judgment
of Company, interfere with Employee's duties at the Company, or compete with any
aspect of the Company's business.
3. Term. This Agreement shall commence as of 8:30 a.m. on July
6, 1998 and shall continue for a term of two years, ending on July 6, 2000 (the
"Initial Term"); provided that
<PAGE> 3
(a) this Agreement shall terminate prior to such date upon Employee's
resignation, death or disability, and (b) this Agreement may be terminated by
Company at any time prior to such date for Cause (as hereinafter defined).
During the Initial Term of this Agreement or any "Renewal Term" (as defined
below) of this Agreement, Employee may resign, or Company may terminate Employee
without Cause, in either case by giving the other party four (4) weeks' written
notice. If Employee resigns during the Initial Term, no bonus (pursuant to
Section 4(b)) shall be earned after the date of resignation and any bonus earned
or accrued but unpaid at the date of resignation shall be forfeited unless
Employee shall continue to serve Company as described in subparagraphs 2(a) and
2(b) during the entire notice period, or for such shorter period of time as may
be determined by Company in its sole discretion. Unless either party elects to
terminate this Agreement at the end of the Initial Term by giving the other
party written notice of such election at least sixty (60) days before the
expiration of the Initial Term, this Agreement shall be deemed to have been
renewed for an additional term of one (1) year (a "Renewal Term") commencing on
the day after the expiration of the Initial Term. Unless either party elects to
terminate this Agreement at the end of any Renewal Term by giving the other
party notice of such election at least sixty (60) days before the expiration of
the Renewal Term, this Agreement shall be deemed to have been renewed for an
additional Renewal Term commencing on the day after the expiration of the then
current Renewal Term. If Company terminates Employee without Cause or the
Initial Term or any Renewal Term expires without being renewed, upon and after
the date on which such termination or expiration occurs (the "Payment
Continuation Date"), the Employee shall continue to receive, until the first
anniversary of the Payment Continuation Date (the "Payment Period") the sum of
(A) his Base Salary plus (B) the bonus, if any, received by the Employee in the
twelve months preceding the Payment Continuation Date, such sum of (A) and (B)
to be payable in approximately equal installments in accordance with the
Company's regular payroll practices, from time to time, but not less frequently
than monthly. During the Payment Period, the provisions of subparagraph 4(c)
shall continue to apply as though this Agreement had not terminated. In
addition, during the Payment Period, the Employee shall receive, at Company
expense, outplacement services comparable to those provided to executives
similarly situated as Employee ("Outplacement Services").
4. Compensation.
(a) For all of the service rendered by Employee
to Company, Employee shall receive an annual base salary of One Hundred Fifty
Thousand Dollars ($150,000) for the Initial Term, payable in installments in
accordance with Company's regular payroll practices in effect from time to time,
but not
2
<PAGE> 4
less frequently than monthly. On an annual basis during the Initial Term and any
Renewal Term, Company's Board of Directors shall review Employee's performance
under this Agreement for the purpose of considering a raise in his then current
Base Salary. The Board of Directors may award such a raise, in any amount, or no
raise whatsoever, in its sole discretion.
(b) In addition to Employee's Base Salary, Employee
shall be entitled to certain bonuses based on an annual target equivalent to 35%
of the Base Salary, obtainable only based on achievement of objectives and
criteria to be agreed between the Employee and the Company's Chief Executive
Officer within 90 days of the date of this Agreement and then attached to this
Agreement as Exhibit B. Employee may be entitled to additional future bonuses
if, as, and only to the extent, agreed and determined by Company's Board of
Directors, in its sole discretion.
(c) Throughout the term of this Agreement and as long
as they are kept in force by Company, Employee shall be entitled to participate
in and receive the benefits of any profit sharing or retirement plans and any
medical, dental, life, accident, short-term and long-term disability insurance
or sick leave plans or programs or any bonus, stock option or incentive
compensation plans made available to other similarly situated employees of
Company.
(d) Employee shall be entitled to fifteen (15) days
paid vacation annually during each year ended December 31 (pro rated for any
period less than 12 months and earned at a rate of 1.25 days per month of
service) in addition to all national holidays on which the principal executive
offices of Company are closed. Unless otherwise approved in advance in writing
by the Chief Executive Officer, Employee may not carryover any accrued but
unused vacation days from any year in the Initial Term or any Renewal Term into
succeeding years of the term of this Agreement. Upon termination of Employee's
employment other than for Cause, Employee shall be entitled to payment for any
accrued but unused vacation days (not forfeited by the other provisions of this
Paragraph) at a rate equal to the amount of Employee's Base Salary as then in
effect, divided by 260, and multiplied by the number of applicable accrued and
unused days.
(e) During the Initial Term and any Renewal Term,
Employee shall have the right to maintain his principal residence in the
metropolitan Atlanta, Georgia area unless and until the Company's Chief
Executive Officer determines in his sole discretion that the maintenance of such
principal private residence in the metropolitan Atlanta, Georgia area materially
impairs Employee's ability to perform his duties hereunder.
3
<PAGE> 5
5. Expenses. Company will reimburse Employee for all
reasonable expenses incurred by Employee in connection with the performance of
Employee's duties hereunder upon receipt of itemized accounts of such
expenditures and in accordance with Company's regular reimbursement procedures
and practices in effect from time to time.
6. Grant of Options.
(a) Employee is hereby granted share options
("Options") to receive One Hundred Thousand (100,000) shares of the common stock
("Common Stock") of the Company at an exercise price equal to the closing price
of the Company's Common Stock on the Nasdaq Stock Market on the date of this
Agreement, vesting immediately, exercisable for a term of not less than five
years, and subject to and otherwise containing other terms and conditions set
forth in the option document evidencing the Options, delivered contemporaneously
with the execution of this Agreement and in accordance with the Company's 1994
Stock Incentive Plan (the "Plan").
(b) Withholding of Taxes. Whenever the Company
proposes or is required to deliver or transfer Options or shares of Common Stock
pursuant to the grant or exercise of any Option, Company shall have the right to
(i) require Employee to remit to the Company or to withhold from Employee
directly, amounts sufficient to satisfy any federal, state and/or local
withholding tax requirements, prior to the delivery or transfer of any
certificates for such Options or shares of Common Stock, or (ii) take whatever
action it deems necessary to protect its interest with respect to such tax
liabilities.
(c) Terms of Option Exercise. Each Option granted
under subparagraph 6(a) above shall contain such other terms and conditions as
are permitted under the terms of the Plan or any then applicable stock option
plan of the Company as the committee or the Board of Directors administering any
such plan may elect, in its sole discretion, except to the extent necessary to
preserve the status of any option granted as an incentive stock option to
continue to qualify as an incentive stock option under Section 422 of the
Internal Revenue Code.
(d) Mechanics of Exercise. When exercisable, any
Option granted hereunder may be exercised by written notice to the Company
specifying the number of shares to be issued upon exercise of the option (the
"Option Shares") and, to the extent such Option Shares are not then covered by
an effective registration statement under the Securities Act of 1933, as
amended, on Form S-8, Form S-3 or otherwise, containing the Employee's
acknowledgment, in form and substance satisfactory to the Company, that the
Employee (i) is purchasing such Option Shares for investment and not for
distribution or resale and (ii)
4
<PAGE> 6
has been advised and understands that such Option Shares may not be transferred
without compliance with all applicable federal or state securities laws.
7. Disability. If, because of a disability, Employee cannot
perform the essential functions of his job (as described in this Agreement),
with or without reasonable accommodation, the Company, during the period of such
disability, will continue the payment of Employee's Base Salary at its then
current rate for such period of disability up to a maximum of thirteen (13)
weeks following the date Employee is first unable to perform his duties due to
such disability. If, as a result of such disability, Employee is unable to
perform his duties for a period of thirteen (13) consecutive weeks or for a
cumulative period of twenty-six (26) weeks during any twelve-month period,
Company may terminate this Agreement and Company shall have no further
obligations or liabilities hereunder after the date of such termination, other
than as set forth in Paragraph 11 below.
8. Death. If Employee dies, all payments hereunder shall cease
at the end of the month in which Employee's death shall occur and Company shall
have no further obligations or liabilities hereunder to Employee's estate or
legal representative or otherwise, other than as set forth in Paragraph 11
below.
9. Change of Control.
(a) Upon any "Change of Control," the Company or
Employee may terminate the Employee's employment on four (4) weeks prior written
notice, and in such event Company shall pay Employee his then applicable annual
Base Salary, in monthly installments, for a period of twenty four (24) months
after the date on which such termination occurred. In addition, the Company
shall pay any bonus earned or accrued up to that date, together with the bonus
earned over the last 12 months, both amounts to be paid in monthly installments
over a period of twelve (12) months after the date on which such termination
occurred (collectively, the "Termination Payment"). In addition, the Employee
will be treated for purposes of subparagraph 4(c) (but for no other purpose) as
though this Agreement remained in effect for a one year period after termination
and will be provided with Outplacement Services for at least a one year period
after termination. Upon making the Termination Payment in full and maintaining
the benefits under subparagraph 4(c) and the Outplacement Services for the one
year period described in the prior sentence, Company shall have no further
obligations or liabilities hereunder and Employee shall be released from the
restrictions contained in subparagraphs 13(a) and 13(b) hereof.
5
<PAGE> 7
(b) For purposes of this Agreement, the term "Change
in Control" shall mean any of the following:
(i) any person (as such term is used in Sections
3(a)(9), 13(d) and 14(d)(2) of the Securities Exchange Act of 1934 (the
"Exchange Act")), other than the Company, a subsidiary of the Company, an
employee benefit plan (or related trust) of the Company or a direct or indirect
subsidiary of the Company, or affiliates of the Company (as defined in Rule
12b-2 under the Exchange Act), becomes the beneficial owner (as determined
pursuant to Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Company representing 50% or more of the combined voting power
of the Company's then outstanding securities (provided that for purposes of this
determination, a person shall not be deemed the beneficial owner of securities
of which such person has the right to acquire beneficial ownership if such right
has not been exercised and such right was acquired directly from the Company);
or
(ii) the liquidation or dissolution of the
Company or the occurrence of a sale of all or substantially all of the assets of
the Company to an entity which is not a direct or indirect subsidiary or parent
of the Company; or
(iii) the occurrence of a reorganization,
merger, consolidation or other similar transaction or connected series of
transactions of the Company as a result of which either (a) the Company does not
survive or (b) pursuant to which shares of the Company common stock ("Common
Stock") would be converted into cash, securities or other property, unless, in
case of either (a) or (b), the holders of the Company's Common Stock immediately
prior to such transaction will, following the consummation of the transaction,
beneficially own, directly or indirectly, (x) more than 50% of the combined
voting power of the then outstanding voting securities entitled to vote
generally in the election of directors of the Company surviving, continuing or
resulting from such transaction (the "Successor") or (y) beneficially own voting
securities in the Successor in substantially the same proportion in which they
beneficially owned the Company's Common Stock immediately prior to such
transaction; or
(iv) the occurrence of a reorganization, merger,
consolidation, or similar transaction of the Company, or before any connected
series of such transactions, if, upon consummation of such transaction or
transactions, the persons who are members of the Board of Directors of the
Company immediately before or at the time of execution of an agreement providing
for such transaction or transactions cease to constitute a majority of the Board
of Directors of the Company or, in a case where the Company does not survive in
such transaction, of the corporation
6
<PAGE> 8
surviving, continuing or resulting from such transaction or transactions; or
(v) any other event which is at any time
designated as a "Change in Control" for purposes of this Agreement by a
resolution adopted by the Board of Directors of the Company with the affirmative
vote of a majority of the nonemployee directors in office at the time the
resolution is adopted; in the event any such resolution is adopted, the Change
in Control event specified thereby shall be deemed incorporated herein by
reference and thereafter may not be amended, modified or revoked without the
written agreement of the Employee.
10. Discharge for Cause. Company may discharge Employee at any
time for "Cause" immediately upon written notice by Company to Employee. For
purposes of this Agreement, the term "Cause" means (i) the willful failure by
Employee to substantially perform his duties or obligations hereunder (other
than any such failure resulting from Employee's disability or death and other
than breaches of the covenants set forth in Paragraphs 12 and 13 hereof, which
events are governed by clause (iv) below), resulting, or reasonably likely to
result, in material economic harm to the Company; provided such failure remains
uncured for a period of 30 days after written notice describing the same is
received by the Employee; provided, further that isolated or insubstantial
failure shall not constitute Cause hereunder, (ii) Employee's conviction (which,
through lapse of time or otherwise, is not subject to appeal) of any felonious
crime or any other offense if it involves money or other property of the Company
or any of its subsidiaries; provided, that any such crime or offense results in
material injury to the Company, (iii) use of alcohol or any unlawful controlled
substance to the extent that it interferes on a continuing and material basis
with the performance of Employee's duties under the Agreement or (iv) any
material breach by Employee of the terms of Paragraphs 12 and 13 of this
Agreement. For purposes of the definition of "Cause" under this Agreement, no
act, or failure to act, on Employee's part shall be considered "willful" if it
was done, or omitted to be done, in good faith and with reasonable belief that
such action or omission was in the best interest of the Company. Employee shall
not be deemed to have been terminated for Cause unless and until there shall
have been delivered to the Employee a copy of the resolution, duly adopted by
the affirmative vote of not less than a majority of the entire membership of the
Board, at a meeting of the Board (after notice to Employee and an opportunity
for Employee, together with Employee's counsel, to be heard before the Board
prior to its taking such action), finding that in the opinion of the Board,
Employee engaged in conduct set forth above in clauses (i)-(iv) above, and
specifying the particulars thereof. Upon Employee's termination for Cause by the
Company, Employee shall
7
<PAGE> 9
be entitled to receive his Base Salary through the day on which his termination
occurs, together with any other compensation and benefits to which Employee may
be entitled through the date of termination under applicable plans, programs and
agreements of the Company.
11. Severance Payments. If this Agreement is terminated
pursuant to Paragraphs 7 or 8 above at any time prior to the expiration of the
Initial Term or any Renewal Term, Company shall pay Employee (or his estate, in
the event of Employee's death), after such termination, for an additional period
of six (6) months after the month in which such termination occurs, additional
monthly installments of his then applicable annual Base Salary and upon
completion of such six monthly payments, Company shall have no further
liabilities or obligations to Employee hereunder, other than with respect to any
bonus earned through the date of termination as set forth in Paragraph 4(b)
above.
12. Company Property. All advertising, sales, manufacturers'
and other materials or articles or information, including, without limitation,
data processing reports, customer sales analyses, invoices, price lists or
information, samples, costs, customer lists, supply information, internal
business procedures, commission plans, market studies, information concerning
pending or contemplated acquisitions or expansion plans of Company or its
affiliates (each an "Affiliate") or the existence of negotiations concerning the
same, and similar non-public information relating to the internal operations,
technical information, processes, procedures, techniques, manufacturing,
business plans, policies or practices of Company or its Affiliates, samples, or
any other materials or data of any kind furnished to Employee by Company or
developed by Employee on behalf of Company or at Company's direction or for
Company's use or otherwise in connection with Employee's employment hereunder,
are and shall remain the sole and confidential property of Company, as shall any
other books, documents, lists and records pertaining to the business of Company
or its Affiliates (collectively, the "Records"), whether the Records are
written, typed, printed, contained on microfilm, computer disc or tape, or are
set forth in some other medium of expression. Upon termination of Employee's
employment with Company, for any reason, or if Company requests the return of
such materials or Records at any time during Employee's employment, Employee
shall immediately deliver the same to Company.
13. Noncompetition, Trade Secrets and Confidentiality
(a) During the term of this Agreement and for a
period of two (2) years after the termination of his employment
with Company for any reason whatsoever, Employee shall not
8
<PAGE> 10
directly or indirectly induce or attempt to influence any employee of Company to
terminate his or her employment with Company and shall not engage in (as a
principal, partner, director, officer, agent, employee, consultant or otherwise)
or be financially interested in any business operating within the continental
United States involved in business activities which are the same as, similar to
or in competition with business activities carried on by Company, or being
definitely planned by Company, at the time of the termination of Employee's
employment. However, nothing contained in this Paragraph 13 shall prevent
Employee from holding for investment no more than five percent (5%) of any class
of equity securities of a company whose securities are traded on a national
securities exchange or from engaging in the activities described in Exhibit A
attached hereto.
(b) During the term of this Agreement and at all
times thereafter, Employee shall not use for his personal benefit, or disclose,
communicate or divulge to, or use for the direct or indirect benefit of any
person, firm, association or company other than Company or an Affiliate of
Company, any material referred to in Paragraph 12 above or any information
regarding the business methods, business policies, procedures, techniques,
research or development projects or results, trade secrets, or other knowledge
or processes of or developed by Company or its Affiliates or any names and
addresses of customers or clients or any data on or relating to past, present or
prospective customers or clients or any other confidential information relating
to or dealing with the business operations or activities of Company or its
Affiliates, made known to Employee or learned or acquired by Employee while in
the employ of Company.
(c) Any and all writings, inventions, improvements,
processes, procedures and/or techniques which Employee may make, conceive,
discover or develop, either solely or jointly with any other person or persons,
at any time during the term of this Agreement, whether during working hours or
at any other time and whether at the request or upon the suggestion of Company
or its Affiliates or otherwise, which relate to or are useful in connection with
any business now or hereafter carried on or contemplated by Company or its
Affiliates, including developments or expansion of its present field of
operations, shall be the sole and exclusive property of Company. Employee shall
make full disclosure to Company of all such writings, inventions, improvements,
processes, procedures and techniques, and shall do everything necessary or
desirable to vest the absolute title thereto in Company. Employee shall write
and prepare all specifications and procedures regarding such inventions,
improvements, processes, procedures and techniques and otherwise aid and assist
Company so that Company can prepare,
9
<PAGE> 11
at Company's expense, and present applications for copyright or Letters Patent
therefor and can secure such copyright or Letters Patent wherever possible, as
well as reissues, renewals, and extensions thereof, and can obtain the record
title to such copyright or patents so that Company shall be the sole and
absolute owner thereof in all countries in which it may desire to have copyright
or patent protection. Employee shall not be entitled to any additional or
special compensation or reimbursement regarding any and all such writings,
inventions, improvements, processes, procedures and techniques.
(d) Employee acknowledges (i) that the trade secrets
and confidential information of Company and its Affiliates relate to the conduct
of Company's business, are of independent economic value to Company because they
are not generally known and are the subject of efforts by Company to maintain
their secrecy, (ii) that the right to maintain the secrecy of the trade secrets
and confidential information of Company and its Affiliates constitutes a
proprietary right that Company and its Affiliates are entitled to protect, (iii)
that the restrictions contained in the foregoing subparagraphs (a), (b) and (c),
in view of the nature of the business in which Company and its Affiliates are
engaged, are reasonable and necessary in order to protect the legitimate
interests of Company, and (iv) that any violation of such restrictions would
result in irreparable injuries to Company. Employee therefore acknowledges that,
in the event of his violation of any of these restrictions, Company shall have
the right to obtain from any court of competent jurisdiction preliminary and
permanent injunctive relief, as well as damages and an equitable accounting of
all earnings, profits and other benefits arising from such violation, which
right shall be cumulative and in addition to any other rights or remedies to
which Company may be entitled.
(e) If the period of time, scope of activity, or the
area specified in subparagraph (a) above should be adjudged unreasonable in any
proceeding, then the period of time shall be reduced by such number of months or
the area shall be reduced by the elimination of such portion thereof or both so
that such restrictions may be enforced in such area and for such time as is
adjudged to be reasonable. If Employee violates any of the restrictions
contained in the foregoing subparagraph (a), the restrictive period shall not
run in favor of Employee from the time of the commencement of any such violation
until such time as such violation shall be cured by Employee to the satisfaction
of Company.
14. Prior Agreement. Employee represents to Company (a) that
there are no restrictions, agreements or understandings whatsoever to which
Employee is a party which would prevent or make unlawful his execution of this
Agreement or his employment
10
<PAGE> 12
hereunder, (b) that his execution of this Agreement and his employment hereunder
shall not constitute a breach of any contract, agreement or understanding, oral
or written, to which he is a party or by which he is bound, and (c) that he is
free and able to execute this Agreement and to enter into employment by Company.
15. Miscellaneous.
(a) Indulgences, Etc. Neither the failure nor any
delay on the part of either party to exercise any right, remedy, power or
privilege under this Agreement shall operate as a waiver thereof, nor shall any
single or partial exercise of any right, remedy, power or privilege preclude any
other or further exercise of the same or of any other right, remedy, power or
privilege, nor shall any waiver of any right, remedy, power or privilege with
respect to any occurrence be construed as a waiver of such right, remedy, power
or privilege with respect to any other occurrence. No waiver shall be effective
unless it is in writing and is signed by the party asserted to have granted such
waiver.
(b) Controlling Law. This Agreement and all questions
relating to its validity, interpretation, performance and enforcement
(including, without limitation, provisions concerning limitations of actions),
shall be governed by and construed in accordance with the laws of the
Commonwealth of Pennsylvania, and without the aid of any canon, custom or rule
of law requiring construction against the draftsman.
(c) Notices. All notices, requests, demands and other
communications required or permitted under this Agreement shall be in writing,
and may be given by (i) personal delivery, (ii) first-class United States mail,
postage prepaid, registered or certified, (iii) overnight delivery service,
charges prepaid, or (iv) telecopy or other means of electronic transmission, if
confirmed promptly by any of the methods specified in clauses (i)-(iii) of this
sentence, and will be deemed to have been duly given or made when delivered
personally, when mailed first-class, postage prepaid, registered or certified
mail, when delivered to the overnight delivery company, charges prepaid, or when
sent by electronic transmission, to the respective parties, as follows:
(i) If to Employee:
4771 East Conway
Atlanta, GA 30327
11
<PAGE> 13
(ii) If to Company:
EPL Technologies, Inc.
2 International Plaza, Suite 245
Philadelphia, PA 19113
Attention: Chief Executive Officer
Any party may alter the address to which
communications or copies are to be sent by giving notice of such change of
address in conformity with the provisions of this paragraph for the giving of
notice.
(d) Binding Nature of Agreement. This Agreement shall
be binding upon and inure to the benefit of Company and its successors and
assigns and shall be binding upon Employee and his heirs and legal
representatives. This Agreement and the rights and obligations hereunder shall
not be assigned by Employee.
(e) Execution in Counterparts. This Agreement may be
executed in any number of counterparts, each of which shall be deemed to be an
original as against any party whose signature appears thereon, and all of which
shall together constitute one and the same instrument. This Agreement shall
become binding when one or more counterparts hereof, individually or taken
together, shall bear the signatures of all of the parties reflected hereon as
the signatories.
(f) Provisions Separable. The provisions of this
Agreement are independent of and separable from each other, and no provision
shall be affected or rendered invalid or unenforceable by virtue of the fact
that for any reason any other or others of them may be invalid or unenforceable
in whole or in part.
(g) Entire Agreement. This Agreement contains the
entire understanding among the parties hereto with respect to the subject matter
hereof, and supersedes all prior and contemporaneous agreements and
understandings, inducements or conditions, express or implied, oral or written,
except as herein contained. The express terms control and supersede any course
of performance and/or usage of the trade inconsistent with any of the terms
hereof. This Agreement may not be modified or amended other than by an agreement
in writing signed by the parties hereto.
(h) Paragraph Headings. The paragraph headings in
this Agreement are for convenience only and form no part of this Agreement and
shall not affect its interpretation.
(i) Gender, Etc. Words used herein, regardless of the
number and gender specifically used, shall be deemed and
12
<PAGE> 14
construed to include any other number, singular or plural, and any other gender,
masculine, feminine or neuter, as the context indicates is appropriate.
(j) Number of Days. In computing the number of days
for purposes of this Agreement, all days shall be counted, including Saturdays,
Sundays and holidays; provided, however, that if the final day of any time falls
on a Saturday, Sunday or holiday on which federal banks are or may elect to be
closed, then the final day shall be deemed to be the next day which is not a
Saturday, Sunday or such holiday.
(k) Survival. Paragraphs 12 and 13 shall survive and
continue in full force in accordance with their terms notwithstanding any
termination of this Agreement.
IN WITNESS WHEREOF, the parties have executed and delivered
this Agreement as of the date first above written.
EPL TECHNOLOGIES, INC.
By: /s/ Paul L. Devine
-------------------------------
Paul L. Devine
Chairman, President and
Chief Executive Officer
EMPLOYEE
/s/ R. Brandon Asbill (SEAL)
-------------------------------
R. Brandon Asbill
13
<PAGE> 15
Exhibit A
Permitted Business Activities
1. Manage personal and family investments.
2. Participate in charitable or municipal organizations, not including
elected office.
<PAGE> 16
Exhibit B
Bonus Criteria
[to be attached within 90 days
of the date of the Agreement]
<PAGE> 1
EPL Technologies, Inc.
Exhibit 11.0
Computation of Earnings per Common Share and
Diluted Earnings per Common Share
<PAGE> 2
EXHIBIT 11.0
EPL TECHNOLOGIES, INC.
COMPUTATION OF LOSS PER SHARE
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net Loss $ (3,679) $ (4,667) $ (1,237) $ (1,671)
Deduct:
Accretion, discount and dividends on
preferred stock 2,619 411 265 92
-------- -------- -------- --------
Net loss for common shareholders $ (6,298) $ (5,078) $ (1,502) $ (1,763)
======== ======== ======== ========
Weighted average number
of common shares outstanding 10,305 8,150 11,452 8,630
======== ======== ======== ========
Basic Loss Per Share $ (0.61) $ (0.62) $ (0.13) $ (0.20)
======== ======== ======== ========
Net Loss for diluted loss
per share computation $ (3,679) $ (4,667) $ (1,237) $ (1,671)
======== ======== ======== ========
Weighted average number
of common shares outstanding 10,305 8,150 11,452 8,630
Common share equivalent applicable to:
Series A convertible preferred stock 695 1,570 46 1,476
Series B convertible preferred stock 207 1
Series C convertible preferred stock 17 32 72
Series D convertible preferred stock 1,282 1,576
Series A warrants 18 109 8 95
Series D warrants 202 202
Other warrants 75 98 75 112
Stock options 1,783 1,555 1,735 1,437
Less common stock acquired with net proceeds (2,180) (1,139) (3,266) (930)
Weighted average number of common shares
and common share equivalents used to compute ______ ______ ______ ______
diluted loss per share 12,197 10,582 11,829 10,893
======== ======== ======== ========
Diluted loss per share $ (0.30) $ (0.44) $ (0.10) $ (0.15)
======== ======== ======== ========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS FINANCIAL INFORMATION EXTRACTED FROM THE CONDENSED
CONSOLIDATED BALANCE SHEET AS AT SEPTEMBER 30, 1998 (UNAUDITED) AND THE
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 6,003,647
<SECURITIES> 0
<RECEIVABLES> 5,472,169
<ALLOWANCES> 0
<INVENTORY> 4,505,636
<CURRENT-ASSETS> 17,437,537
<PP&E> 12,659,535
<DEPRECIATION> (1,809,742)
<TOTAL-ASSETS> 32,510,988
<CURRENT-LIABILITIES> 7,095,144
<BONDS> 3,937,871
12,930,322
65,000
<COMMON> 11,454
<OTHER-SE> 8,391,845
<TOTAL-LIABILITY-AND-EQUITY> 32,510,988
<SALES> 24,776,127
<TOTAL-REVENUES> 24,776,127
<CGS> 20,667,917
<TOTAL-COSTS> 5,412,253
<OTHER-EXPENSES> 2,381,818
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (6,869)
<INCOME-PRETAX> (3,678,992)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,678,992)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,678,992)
<EPS-PRIMARY> (0.61)
<EPS-DILUTED> (0.30)
</TABLE>
